How to Do Your Own Taxes: 6 Tips to Follow

Tax season isn’t fun for anyone – not even the guys and gals at the IRS. It tends to be a pretty stressful time for employees, business owners, and tax enforcers alike.

But, it doesn’t have to be! Once you understand how taxes work, it’s much easier to file on time, save a little more, and get through tax season stress-free. You’re still going to have to wait for your return or save up for the tax you owe, but at least you’ll be better prepared to handle such things.

Not to mention, taxes get easier as the years go by if you have the same filing requirements year after year. It’s all a matter of learning how to do your own taxes now and making use of that knowledge as the years pass.

To file your taxes completely on your own for the very first time, follow the steps below.

1. Add All Your Earnings and Spendings

The tax system comes down to earnings and spendings. When you’re an employee, you don’t notice this because taxes are automatically taken out of your paycheck every week. You don’t have to budget for what you owe or worry about how much you spend.

Instead, you get a paycheck from the IRS at the end of the fiscal year. This is what’s known as a tax return, which is based on the amount of money taken out of your paycheck.

Those who run their own business, on the other hand, have to pay closer attention to everything they earn and spend. It doesn’t matter if you own a large corporation or if you’re a sole proprietor – you need to know how every dollar comes and goes.

It’s better to track such figures as the year progresses. This saves you a significant amount of time when you’re putting together your file at the end of the year. Plus, when you pay this kind of attention to what you earn and spend, you may discover new financial opportunities that you hadn’t yet thought of.

2. Identify Your Filing Status

Your filing status is determined by more than whether you work for someone or you work for yourself. The IRS wants to know if you’re single or married, and whether or not you plan to file separately or jointly.

There’s also the matter of children to consider. Parents are able to claim dependents on their tax documents up until the children reach a certain age. Dependents may also be elderly or sick people under your care whom you provide for.

3. Gather the Proper Documents

Part of the reason that doing your own taxes is a little complicated at first thanks to all the documents it requires. Employees who file taxes need to gather W-2 forms from all their places of work within a fiscal year, then use the information provided to fill out a 1099 form.

But, there is more than one kind of 1099 tax form, so you need to know which applies to you. Some include:

1099-INT

1099-DIV

1099-B

1099-G

1099-C

Employers and sole proprietors have a separate set of documentation. You’re a sole proprietor if you have a freelance business that earned over $600 within a fiscal year.

If you just started freelancing, you may need to gather W-2’s from previous work. But you will file everything through a 1044 form. These have variations that you need to be aware of as well.

Whenever you’re in doubt about which forms to use, get your information straight from the IRS. Go to their website or call an IRS 1-800 number to be sure you’re filing correctly.

4. Start Taking Deductions

Once you’ve gathered all your paperwork, it’s time to start taking deductions. These include business expenses, medical costs, and, at times, car payments and gas mileage. Recent graduates can write off their student loan payments and homeowners are able to claim their mortgage, too.

Don’t assume you can just write off everything, though. If you work from home, you have to be careful about what you claim as office space or a business expense. Traveling costs can catch up to you if you try to bend the rules and remember, only 50% of business meals and similar miscellaneous expenses can be written off.

To make sure you account for everything you’ve spent in the most accurate manner, go through everything step by step. Add up your business deductions first, then go into things like medical expenses and homeowner costs.

5. Consider Other Benefits and Claims

Were you unemployed for a few months of the year? Did you receive worker’s compensation for an accident or have to take medical leave from a job?

These are things you may be able to claim on your tax return. Such conditions make it easier to present your case to the IRS for more fair return or end-of-year payment amount.

They’re outliers, though, which is why you have to think long and hard about everything you experienced this year. Certain claims and benefits won’t always be written out for you.

Not to mention, there may be other payments you owe if you do business in another country or live elsewhere for a certain part of the year. This varies for each country. For help with Australian taxes, click here.

6. Choose a Method of Payment or Return

The final thing to consider is how you want to receive your return or set up your payment. Returns are fairly simple – they show up as a check in the mail after you’ve completed filing. Payments have a few more variations, though.

You can pay your taxes all at once at the end of the year, or you can create a payment plan to help you cover the costs over time. There’s also the option of sending quarterly payments to the IRS in advance, which is a great way to offset the total amount you owe at the end of the year.

The Best Way to Learn How to Do Your Own Taxes

At the end of the day, experience is the best teacher. No matter how nervous you are about doing your taxes, or how anxious you may get when you realize how in-depth it can be, don’t worry. The more you work at it now, the easier it will be every year.

Before you’ll know it, you’ll be a master of how to do your own taxes! For more payment preparation tips and general budgeting advice, click here.